This paper deals with the problem of Fault Detection and Isolation (FDI) for discrete-time Markovian jump Linear Systems (MJLSs). A geometric property related to the unobservable subspace of an MJLS is first presented and the concept of unobservability subspace is introduced. Sufficient conditions for designing an H-infinity-based FDI algorithm for MJLSs subject to input disturbances and measurement noise are presented and developed. Our proposed approach is then applied to the problem of fault detection and isolation in a network of multi-agent systems when imperfect communication channels exist among the agents. A discrete-time communication link with a stochastic packet dropping effect is considered based on the Gilbert-Elliott model and the entire network is modeled as a discrete-time MJLS. Simulation results are presented for formation flight of satellites to demonstrate and verify the effectiveness and performance capabilities of our proposed FDI algorithm. (C) 2009 Elsevier Ltd. All rights reserved.